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“Hey guys! Ben from Pivot Wealth here and today I’m doing the first video in the series of ‘How to be money smart when you get a new job’ which is all about a condition that I call ‘lifestyle creep’.
This is something that I see a lot. it happens to people all the time. it’s not unique to just when you get a new job, but it can be particularly relevant when you get a new job. So, I just wanted to give you an understanding of how it works so that you know what to do to avoid it.
Lifestyle creep is a fairly simple thing. It’s not always easy to avoid but it is simple to understand in that it’s just the process whereby you earn more money and then you spend more money and what I found is that if you let the lifestyle creep keep going it doesn’t really matter how much you earn you end up really not having much money at all
I’ve seen people that make hundreds of thousands, half a million dollars a year even, and they still have less money than other people that I’ve worked with that have significantly lower income, sometimes not even in the six-figure range.
The reason that happens is because when we get a new job there’s this element of societal pressure, you can probably blame Facebook or YouTube or something like that, but you know there’s an element of keeping up. There’s a lot of psychology that drives our money related decisions and I sort of geek out on that probably a bit deep to go into today but the end thing is that we end up spending more money that brings a short-term pleasure but it’s really detrimental for your long-term financial success and as I say it can sort of escalate out of control. So, how you avoid lifestyle creep is simple, again not always easy, but it involves putting a foundation into place for your money management. Specifically around your banking so that you know where you’re spending your money. First of all that you’ve clearly chosen where you’re spending your money so you’ve prioritized where you want to spend and that you understand how much that you’re saving and that you’re happy with that number.
If you do that, then at least you’ve got that sort of core foundation, the next step to make that really easy and to work practically on a day to day basis is that I normally look at having multiple bank accounts for the different types of expenses so they’ve got the right money in the right places at the right times.
There’s only so many types of expenses out there. You’ve got your bills, your day-to-day spending, your debt repayments, what I call your lifestyle spend, which is short-term savings – travel fund big-ticket stuff and then you’ve got your savings and investments
What I’ve found is that if you can segregate and automate those funds, you’ve got the right money, in the right places, at the right times, you can choose your priorities with open arms and then it gives a really long way to making your day-to-day easier. Importantly, avoiding that lifestyle creep so that when you earn more money you don’t just automatically spend more money because it gets crap in the top of the funnel and ideally directed to somewhere or something that’s either going to bring you real happiness and enjoyment or something that will contribute to your long-term financial success – ideally both!
If you’ve got yourself set up in a way that you avoid that lifestyle creep you’ve got the foundations in place you will set to make sure that over time you’re keeping more of the money that you work for.